SEOUL, 20 Dec. (Yonhap) – South Korea on Monday unveiled its economic policy plan for 2022 to put the economy back on a full growth path, but the country could struggle to meet political goals amid the latest wave of COVID-19 cases and political uncertainty during an election year.
The finance ministry has revised its 2022 growth outlook for Asia’s fourth-largest economy upward to 3.1 percent from its previous estimate of 3 percent. He also raised the inflation outlook for next year to 2.2% from 1.4%.
The government has said its economic policy plans for 2022 will aim to support the recovery in domestic demand, support small traders hit hard by the pandemic, and tackle inflationary pressures.
It faces growing economic headwinds, mainly due to the resurgence of the COVID-19 pandemic and the spread of the omicron variant, and political uncertainty related to the presidential election in March next year. .
South Korea grapples with spike in viral infections and critically ill patients after easing virus control in November as part of “living with COVID-19” program intended to gradually return to normal life .
To contain the pandemic, the country reimposed stricter antivirus measures on Saturday, including lowering the maximum size of private gatherings to four people and reinstating curfews during opening hours for restaurants and cafes.
Health officials have warned that the daily number of virus cases could reach 10,000 this month and 20,000 in January if the spread of the virus is left unchecked.
The government expects private spending to increase 3.8% next year after the estimated gain of 3.5% this year. Consumer spending contracted 5% in 2020, punctuated by the pandemic.
“The government considered (the risk of a pandemic) to be neutral next year, expecting it to be gradually brought under control,” Senior Deputy Finance Minister Lee Eog-weon said on Friday during a briefing. hurry.
He said the pace of the economic recovery will likely depend on how quickly uncertainty from the pandemic eases.
The impact of the pandemic on consumption gradually eased following the first wave of COVID-19 in February 2020, as people learned to live with the virus and increased their online shopping.
But employment in the face-to-face service segments is still strained due to the pandemic. South Korea reported job creation for the ninth consecutive month in November, but the number of people employed in accommodation and restaurants fell for the first time in three months.
The Bank of Korea (BOK) said in a monetary policy report that private spending is expected to show a strong recovery until the first half of next year, but uncertainty over the omicron variant and the rise in the inflation could undermine consumer spending.
South Korea has seen a build-up of inflationary pressures this year mainly due to soaring energy costs and high agricultural commodity prices.
Consumer prices are expected to rise at a slower pace next year than this year, but demand-driven price pressure is expected to intensify next year. The BOK expects inflation to rise by 2% next year after 2.3% this year.
BOK Governor Lee Ju-yeol said on Friday that consumer inflation would exceed the central bank’s 2% target for “a considerable period.”
Amid changes in the monetary policy of major economies, the BOK is expected to significantly increase its policy next year to curb inflation and household debt. The central bank raised the key rate in August and November to 1%.
Political uncertainty could also be a setback for the government’s management of economic policy next year.
President Moon Jae-in’s successor will take office in May next year following the March elections. The Moon administration’s economic policy plans may not last, as the new president may adjust economic policy directions for 2022 based on his campaign promise.
Lee Jae-myung, candidate for president of the ruling Democratic Party, openly criticized the finance ministry for opposing the provision of emergency money to all.
The former governor of Gyeonggi province, which surrounds Seoul, has long championed universal basic income and other sweeping social measures. He pledged to donate up to 1 million won ($ 840 USD) to each citizen and an additional 1 million won to each young adult per year, if elected.
Yoon Suk-yeol, presidential candidate of the main opposition People Power Party, has pledged tax reform to lower property taxes.
Political parties have raised the possibility of creating another supplementary budget early next year to support traders who have borne the brunt of tighter virus brakes. The country has drawn up two rounds of supplementary budgets totaling some 50 trillion won this year.
On December 3, the National Assembly hit a record 607.7 trillion won in the national budget. If another supplementary budget is created, the government’s plan for tax expenditure and debt management will inevitably be affected.
“Depending on the outcome of the next election, a new government will set the direction of economic policy,” said Kim Jung-sik, professor emeritus of economics at Yonsei University.
“But any new government should continue to make efforts to create jobs, strengthen the competitive advantage of exports and stabilize the housing market,” he added.